DA1-uncertainty - Introduction to Uncertainty UGBA 143 Game Theory and Business Decisions One of the three boxes contains a prize the other two are

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1 1 Introduction to Uncertainty UGBA 143: Game Theory and Business Decisions 2 One of the three boxes contains a prize; the other two are empty After choosing one of them (e.g. pink), one of the other boxes (e.g. red) is opened and revealed to be empty Will you stick with your original choice? 3 Probability: The Language of Uncertainty Two key components: A. A list of all possibilities that may occur B. The probability / likelihood of each scenario 4 A. Listing all possible scenarios Creative brainstorming The set of possible scenarios must be: 1. Collectively exhaustive ¾ Exhaust all possibilities ¾ Total probability of all scenarios is 100% 2. Mutually exclusive ¾ Two scenarios cannot simultaneously occur ¾ Otherwise, scenarios have not been sufficiently “refined” 5 B. Assigning probabilities Probability of an event: Use historical data or collect new information Check: – Is there sufficient data? – Do all observations reflect uncertainty in the same way?
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This note was uploaded on 04/01/2008 for the course UGBA 143 taught by Professor Xuanmingsu during the Spring '08 term at University of California, Berkeley.

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DA1-uncertainty - Introduction to Uncertainty UGBA 143 Game Theory and Business Decisions One of the three boxes contains a prize the other two are

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